Loan Derivatives Indexes Drop to Record as LBO Debt Hits Snags

" Indexes that allow investors to bet on the health of the leveraged loan market, which has fueled the private-equity boom, fell to the lowest since they started trading as investor demand for the debt wanes.

The indexes are falling as Chrysler has been forced to raise its proposed interest rates to fund the takeover of its auto and finance units by Cerberus Capital Management LP and as investors speculate that Kohlberg Kravis Roberts & Co. may have to offer higher rates to investors on 9 billion pounds (18.5 billion) of loans to finance the buyout of U.K. pharmacist Alliance Boots Plc.

"Boots and Chrysler are two absolutely huge deals that are being seen as the test for appetite for risk,'' said Gary Jenkins, partner of London-based credit fund Synapse. "There's undoubtedly been a transfer of power towards the investor base.''

There is "kind of a little freeze in the marketplace,'' JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said July 18 on a conference call with investors. "If you see this continue you will see the Street taking on a lot of bridge loans and more aggressive repricing of those things.'' JPMorgan is the biggest U.S. underwriter of leveraged loans, according to data compiled by Bloomberg. "

Its getting bad enough that a significant number of deals are falling through:

" At least 17 speculative-grade companies canceled or restructured loan or bond offerings since mid-June. "

Source: Loan Derivatives Indexes Drop to Record as LBO Debt Hits Snags (http://www.bloomberg.com/apps/news?pid=20601009&sid=afYkFIWr9684&refer=bond)

China Raises Rates After Fastest Growth in 12 Years

" China raised interest rates for the third time since March to cool the fastest pace of economic growth in 12 years and restrain inflation.

The benchmark one-year lending rate will rise by 0.27 percent point to an eight-year high of 6.84 percent tomorrow, the People's Bank of China said. The deposit rate will increase by the same amount to 3.33 percent and a tax on interest income will be cut on Aug. 15 to encourage saving.

Premier Wen Jiabao aims to slow lending and investment fueled by record exports after China announced second-quarter growth of 11.9 percent yesterday. As well as raising interest rates, the government has ordered banks to set aside larger money reserves five times this year. Consumer prices rose the most in 33 months in June, factory and property spending have surged, and the key stock index has almost doubled in value this year. "

Source: China Raises Rates After Fastest Growth in 12 Years (Update5) (http://www.bloomberg.com/apps/news?pid=20601087&sid=aDXmePVdZC4A&refer=home)

Treasury 10-Year Yield Falls Below 5 Percent on Credit Concern

" Treasuries rose, pushing the benchmark 10-year note's yield below 5 percent, on speculation rising subprime mortgage defaults will lead to higher interest rates for private borrowers and curb economic growth.

Ten-year notes strengthened the most in more than a week as Standard & Poor's cut ratings on European collateralized debt obligations and gauges of investor appetite for corporate bonds and loans fell.

"There's a sense that crises in financial markets would force central banks' hands,'' said Tom McGlade, who trades 30- year Treasuries in Greenwich, Connecticut, at RBS Greenwich Capital "That's part of why the market rallies in a fear-trade environment.'' The firm is one of the 21 primary U.S. government securities dealers that underwrite Treasury auctions. "

Source: Treasury 10-Year Yield Falls Below 5 Percent on Credit Concern (http://www.bloomberg.com/apps/news?pid=20601087&sid=alYI7EFkBNcs&refer=home)

U.S. Economy: Leading Index Fell More Than Forecast

" A measure of the economy's future fell more than forecast in June, pulled down by a slump in building permits that signals housing will remain the biggest drag on growth.

The Conference Board's leading economic indicator index declined 0.3 percent after rising a revised 0.2 percent in May, the New York-based research group said today. A report from the Federal Reserve Bank of Philadelphia showed manufacturing in the region cooled.

The leading index was forecast to fall 0.1 percent, according to the median of economists' projections in a Bloomberg News survey, after an originally reported May increase of 0.3 percent. The index, which points to the economy's outlook over the next three to six months, has been down in four of the first six months of 2007. "

Source: U.S. Economy: Leading Index Fell More Than Forecast (Update3) (http://www.bloomberg.com/apps/news?pid=20601068&sid=axufkStBbqA8&refer=economy)

Philadelphia Fed's Factory Index Fell to 9.2 in July

" Manufacturing in the Philadelphia region slowed more than forecast this month as orders cooled.

The Federal Reserve Bank of Philadelphia's general economic index decreased to 9.2 in July from 18 in June, which was the highest level in more than two years, the bank said today. A positive number signals expansion.

Elevated energy costs and slowing consumer demand may be prompting manufacturers to think twice about cranking up production. Today's report raises questions about the strength of the rebound in manufacturing, which is forecast to help the economy withstand the deepest housing recession in 16 years. "

Source: Philadelphia Fed's Factory Index Fell to 9.2 in July (Update1) (http://www.bloomberg.com/apps/news?pid=20601087&sid=a2BDS4edRZy0&refer=home)